Pension Advance Scam Targets Military Retirees And Seniors
Some payday loan companies have earned a terrible reputation for taking advantage of consumers. Now a new spin on the old payday loan is putting retirees' pensions at risk.
According to the attorney general of New York State, some pension advice firms are duping consumers into taking loans as advances on their pension income without fully understanding the terms. Retired military personnel and older retirees are the scammers' principal targets.
"Are you receiving a monthly military retirement benefit through DFAS, or a disability benefit from the VA? Do you need an immediate lump sum of cash? Using our program, you can leverage your military pension, retirement, or VA disability payments into upfront cash. It's not a loan—we like to think it's something better."
"Loans, including military pension loans, are typically based on your credit score. That's because a loan is based on your ability to repay—and that's why military pension loans might not be your best option. After all, you'll get the same monthly benefit from the military no matter what happens to your credit score, right? ... Why should the amount you receive be based on your credit score? It doesn't change your benefit!"
"Through our program, you can sell a portion of your benefits for a lump sum of cash—that allows you to truly leverage the power of your pension in a way that military pension loans just can't match. Use the reliability of your pension payments to your advantage!"
"You've served your country—now it's time for your money to start working for you. How will you use your lump sum of cash? Will you become debt free? Buy a new home, or car? Send a child to college? Start a new business? The choice is yours because the money is yours! Unlock the power of your military pension and put it to work for you today instead of waiting for the benefit to trickle in month-by-month over the coming years."
Five months after the U.S. Consumer Financial Protection Bureau (CFPB) warned that pension advance loans could be the new payday loan—leaving consumers who already are struggling to make ends meet in dire financial situations—the agency announced it had teamed with the State of New York to shut down two companies that allegedly deceived retirees about the risks and costs associated with the loan products.
The CFPB, along with the New York Department of Financial Services (NYDFS), filed a lawsuit in federal court against Pension Funding, LLC, Pension Income, LLC, and three of the companies' individual managers for allegedly duping consumers into borrowing against their pensions by deceptively marketing the products as a "tailored financing program" instead of a loan and failing to disclose high interest rates and fees.
To attract potential customers, the companies allegedly steered internet-search traffic to its website. It targeted consumers who conducted searches for phrases such as "pension loans," "retirement loans," "military pension loans," and "sell my pension." Such consumers often would see online advertisements for "pension loans."
Those ads then would take individuals to the companies' websites, which represented that "through a type of money purchase pension plan, Pension Funding LLC transacts a pension buyout and advances you the cash when needed."
The sites then assured the customers that the "pension buyout is not a pension loan; it is a pension lump sum." However, the CFPB and NYDFS allege the products were indeed loans.
To complete the transactions, the companies allegedly misrepresented or failed to inform consumers of the applicable interest rates or fees.
A pension is a defined benefit retirement plan that provides monthly income to employees of companies or governments. The organization contributes money to the pension plan while you are working. The money will be paid to you after you reach retirement age. A formula determines how much money the pension will provide to you once you are retired.
The formula a pension uses is based on a combination of the following:
- Your years of service with the company or government offering the pension.
- Your age.
- Your compensation.
For example, a pension plan might offer a monthly retirement benefit that replaces 50% of your compensation (as measured by taking an average of your pay over your last three years of service) if you are age 55 and have at least 10 years of service.
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